Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/20439
Authors: 
Wallace, Brian
Seltzer, Andrew J.
Huck, Steffen
Year of Publication: 
2004
Series/Report no.: 
IZA Discussion paper series 1193
Abstract: 
This paper examines the relationship between firms? wage offers and workers? supply of effort using a three-period experiment. In equilibrium, firms will offer deferred compensation: first period productivity is positive and wages are zero, while third period productivity is zero and wages are positive. The experiment produces strong evidence that deferred compensation increases worker effort; in about 70 percent of cases subjects supplied the optimal effort given the wage offer, and there was a strong effort response to future-period wages. We also find some evidence of gift exchange; worker players increased the effort levels in response to above equilibrium wage offers by a human, but not in response to similar offers by a computer. Finally, we find that firm players who are initially hesitant to defer compensation learn over time that it is beneficial to do so.
Subjects: 
deferred compensation
pensions
experimental labor economics
personnel economics
gift exchange
incentives
shirking
JEL: 
M51
J41
J31
C91
M52
Document Type: 
Working Paper

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